he Seminole Company wishes to apply the Miller-Orr model to manage its cash investment. Seminole’s...

Question

he Seminole Company wishes to apply the Miller-Orr model to manage its cash investment. Seminole’s management has collected the following estimates:

Cost per transaction	= $200
Variance of daily cash flows	= $10,000
Opportunity cost of cash, per day	= 0.05%

Seminole management has figured, based on their experience dealing with the cash flows of the company, that there should be a cushion— a safety stock—of cash of $20,000. Calculate the following:

a. the lower limit

b. the return point

c. the upper limit

David · Accepted Answer

The Seminole Company wishes to apply the Miller-Orr model to manage its cash 
investment. Seminole’s management has collected the following estimates: 
Cost per transaction = $200 
Variance of daily cash flows = $10,000 
Opportunity cost of cash, per day = 0.05% 
Seminole management has figured, based on their experience dealing with the 
cash flows of the company,

he Seminole Company wishes to apply the Miller-Orr model to manage its cash investment. Seminole’s management has collected the following estimates: Cost per transaction = $200 Variance of daily cash...

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